The recent financial turmoil may have been caused by the analysts who built the software that drove the derivatives markets that, in turn, drove the financial collapse.

More than 40 percent of stocks and shares are traded by computers rather than by humans. These are powered by algorithms called "quants" and were designed by physics and mathematics graduates working in risk management. The problem was that some of the quants  started to think that  $US1 trillion in subprime mortgage debt was a good market to invest in. The next thing that happened there was those $US62 trillion in imaginary wealth.

Not only were the risk assessments seriously flawed, they were based only on the risk to the market at that moment, rather on cold, hard empirical data about a person's ability to pay. The software ignored the fact that a lot of people could not afford to pay and as the economy slid a bit, a lot of them would default on them.

Once the mortgages market tanked, the quants started to panic and dumped shares fast, causing the whole thing to go belly up.

More here.